Lets understand what are Stocks and Flows which are the basic building blocks of a system.
A stock is the memory of the history of changing flows within the system. A stock in simpleterms is the amount of available assets at present - which is decided by the nature of inflowsand outflows in the past. For instance the money in a bank account, the water in a reservoir,the trees in a forest or the number of spare parts in an inventory. A flow is material or datathat enters or leaves a stock over a period of time.
A flow decides the stock level at any point in time - flows can be filling or draining. Foran instance if the population of a country is taken as a stock - then the number of births anddeaths are inflows and outflows respectively. The important thing here to note is that flowsthemselves can depend on some other factors including stock - number of births depend onthe birth rate which depends on the existing population, available medical facilities,literacylevel, social awareness etc.
From the above analysis we have a few important conclusions
- As long as sum of all inflows exceeds sum of all outflows, the level of stock will rise.
- As long as sum of all outflows exceeds the sum of all inflows, the level of stock will fall.
- If sum of all outflows equals sum of all inflows, stock level will not change; it will be heldin dynamic equilibrium at level it happened to be when 2 sets of flows became equal.
- A stock can be increased by decreasing outflow rate as well as by increasing inflow rate.
A stock acts as a source of momentum, lag, delay or a buffer in a system. A stock takes timeto change, because the flows (inflows and outflows both!) take time to flow. For an instance- consider an event of a global oil crisis wherein the supply is in shortage - there are fuelreserves which are maintained so that the customer demand can be fulfilled until the supplyresumes, so that the smooth operation of the system can be maintained. Had there been nosuch stock then the effect of inflow stoppage would have immediately affected the consumers.The stocks, or the storage tanks in our case, acted as shock absorbers and ensured smoothoperation of the system. An important conclusion which can be derived from this is -
A stock allows the inflows and outflows to be temporarily independent and out of balance of each other.
That was all about Stocks and Flows. Remember this are the basic building blocks we use to model the dynamics or in simple terms the behavior of the system over time. We will now look at how the elements of the system, or stocks interact/communicate with each other, termed as ‘Feed-back’. Stay Tuned!